Crash in Stock Markets: Is Coalition Govt Spooking Dalal Street?

Crash in Stock Markets: Is Coalition Govt Spooking Dalal Street?

Elections

With the equity markets running into losses again on Thursday, Dalal Street has now extended its losses to the seventh straight day.

The meltdown triggered with the rekindling of trade tensions between US and China but Indian markets have failed to bounce back even as the global markets have shown signs of recovery.

In a rather new development, even large cap stocks like Reliance, SBI, ICICI Bank have slipped 3 to 5 percent.

Market Experts Not Seeing Majority for Modi Anymore

Several stock market experts are of the opinion that their initial prediction of the BJP winning a simple majority in the ongoing Lok Sabha polls might not come true.

Following the fifth phase of elections, the analysts and brokers on the Street have revised their stance and are now finding the prospect of a coalition government, more likely.

Also Read : LS Polls 2019: Is KCR’s Mission a Non-BJP, Non-Cong Federal Front?

The equity markets always favour a stable government and thus has a natural bias towards the situation where Modi comes back to power with similar majority, thus allaying the uncertainty they associate with coalition governments.

The market players are now expecting a slide in the bourses when the election results are declared on 23 May, and are thereby playing cautious.

Moreover, the muted corporate earnings across major sectors like auto, banking and FMCG has presented the markets with a rather bleak outlook and some are expecting a major correction even in the lead up to 23 May. Cash crunch in the system due to the crisis in mutual fund and NBFC sector is also taking its toll on market sentiments.

Fear of Coalition Govt Overrated

However, the tendency of investors to link markets with electoral outcome is an overrated one and they should rather hedge their bets on technical aspects like company earnings, outlook and liquidity.

As far as economic policies are concerned, one should consider a contrarian point of view.

A coalition government with checks and balances instead of a no-holds barred one under Narendra Modi will ensure against a misadventure like demonetisation and will be forced to take necessary strong steps needed for economic reforms.

Thus, it is more likely that the markets may face tailwinds after the election but will soon recover after the new government presents its budget.

Long-term investors still stand to gain from the markets in the coming months if they take their decisions based on facts and not sentiments.

Also Read : Why Ridicule Majboor Sarkars When We Know They Have Delivered?

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